Importance of risk management

It Helps to Reduce Uncertainty: Uncertainty in any form is bad for business and, by its definition, is difficult to
quantify. As Warren Buffett once said, though, "risk comes from not knowing what you are doing." Therefore,
understanding the internal and external aspects of your business organisation is an integral part of knowing how to
protect it. 
 The more knowledge you have about such factors, the lesser the threat posed by uncertainty to your business, which
is where a thorough PESTEL analysis can be useful. This is because companies generally exist in a complex ecosystem
of constant political, social, economic, and environmental upheaval. Unexpected events arising from any of these
spheres can have a damaging impact on your organisation.

It Helps Improve Your Reputation:

Having a proper risk management strategy in place helps to convey a positive message about your business. Internally,
it instils confidence among your employees about the capabilities of your leadership; after all, having a safe workplace
also helps to boost morale.
• It is Crucial for Successful Planning
Success in business rarely arrives by chance – more often than not, it is a product of meticulous planning and
diligent execution. Unforeseen events can affect the success of your business if you do not have built-in
countermeasures in your plans.
 If you ignore risk management entirely, everything that you do will carry with it a high chance of failure. For
instance, imagine a situation where you fail to identify a workplace safety hazard. If any accident does occur,
it could lead to worker injury, reduced productivity, and, likely, a costly lawsuit. 

•  Ithelps Reduce Expenses and Losses: Risks can be divided based on the nature of their impact on your
finances: income risk and expense risk. Any events or mishaps that reduce your productivity – or your ability
to provide services to your clients – will result in a loss of income. If you can anticipate these risks, then you
can prepare strategies to deal with them well in advance – or even avoid them altogether. For instance,
keeping a portion of your budget aside for such expenses can help you avoid costly interest payments from
sudden loans if and when the need arises .
 Types of risk

• Liquidity Risk:
Liquidity risk is involved when assets or securities cannot be liquidated (that is, turned into cash) fast enough to
ride out an especially volatile market. This kind of risk affects businesses, corporations or individuals in their
ability to pay off debts without suffering losses. As a general rule, small companies or issuers tend to have a
higher liquidity risk due to the fact that they may not be able to quickly cover debt obligations. 
• Business Risk:
When entering a market, every company is exposed to business risk in that there are various factors that may
negatively impact profits and might even lead to the business' demise - including things like government
regulations or the overall economy. 
Within the general blanket of business risk are other various kind of risk that companies examine, including
strategic risk, operational risk, reputational risk and more. In a larger sense, anything that might hinder a
company's growth or lead it to fail to meet targets or margin goals is considered a business risk, and can present
in a variety of ways. 

• Volatility Risk:
Particularly in investment, volatility risk refers to the risk that a portfolio may experience changes in value due to
volatility (price swings) based on the changes in value of its underlying assets - particularly a stock or group of
stocks experiencing volatility or price fluctuations.
Volatility risk is often examined in reference to options trading , which tends to have a higher risk of volatility
due to the nature of options themselves. 
• Inflation Risk:
Inflation risk, sometimes called purchasing power risk, is the risk that the cash from an investment won't be worth
as much in the future due to inflation changing its purchasing power. Inflation risk primarily examines how
inflation (specifically when higher than expected) may jeopardize or reduce returns due to the eroding the value of
the investment.
In general, inflation risk is more of a concern for investors who have debt investments like bonds or other cash-
heavy investments.

• Market Risk
Market risk is the risk that investments or equities will decline in value due to larger economic or market changes
or events. Market risk are several of more specific market risks, including equity risk, interest rate risk and currency
risk.
Equity risk is the risk an equity's share price will drop, causing a loss. Interest rate risk is the risk that the interest
rate of bonds will increase, lowering the value of the bond itself. And currency risk (exchange-rate risk) applies to
foreign investments and the risk incurred with exchange rates for
  Risk management process

Identify the risk

Analyse the risk
Prioritize the risk
Treat the risk
Monitor the risk